Over the last eight weeks, GBPEUR exchange rates have remained range bound between 1.1320 and 1.0980 and I wouldn’t be surprised to see this trend continue for the next 4 weeks, up until the EU summit in October.
Brexit negotiations will continue to be the main driver for GBPEUR exchange rates and as we have seen in recent months, any news that a deal is on the horizon should help the value of the pound. However, with key topics like the Irish border still to be finalised, I believe there is a higher chance of GBPEUR falling to the lower levels in the upcoming weeks.
Only yesterday 50 members of the European Research Group (ERG) made up of many Conservative MPs got together to discuss how they could force the Theresa May to stand down as they do not believe in the Chequers plan. At this stage the chances of a ‘vote of no confidence’ looks unlikely, however this is certainly a problem for the PM. Later today the ERG are set to release their plan in regards to the Irish border issue however I don’t expect this to have an impact on exchange rates at this stage.
To summarise for the short term, I expect buying Euros to become more expensive however this provides an opportunity for clients selling Euros to buy Pounds.
After the October summit I expect both parties will put pressure on one another for a deal to be reached at the November summit, a deadline that the EU have now set. To me it’s clear that both the UK and EU want to secure a deal with each other and I believe this will happen. Therefore, in the longer term I expect the Pound to strengthen against the Euro and we could see 1.15-1.16 by Christmas.
This week on Thursday the Bank of England are set to release their latest interest rate decision. BoE Governor Mark Carney has confirmed that he will stay on as Governor until 2020 only earlier in the week, this decision could be an interesting one. It’s extremely unlikely that interest rates will be changed, however the commentary from the Governor after the decision could have an influence on the Pound’s value.
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